Inghams float to test poultry players’ power

The $1.5bn Inghams float will rely in part on its CEO’s management and a highly concentrated industry structure.

Inghams chief executive Mick McMahon. Supermarkets will be watching the float closely. Pic: Hollie Adams

The coming $1.5 billion Inghams float will rely in part on CEO Mick McMahon’s management and a highly concentrated industry structure.

The top two players in Australia — Inghams Enterprises and Baiada, with its Steggles and Lilydale brands — account for 73 per cent of the market.

This gives the poultry players some leverage against the supermarket giants — but only some.

The chicken companies are helped by the fact there won’t be any import competition any time soon.

TPG paid $900 million for Inghams in 2013 and quickly recovered circa $550 million through property sales, so a profitable exit is already in the bag.

The June 2014 float of Healthscope was also a success with a float price of $2.10 against the present price of $3.12, so the memory of the Myer debacle is back some distance.

This time around TPG will also retain a significant stake in Inghams, so there will be some involvement for at least 12 months.

The Inghams business works through some 200 contract growers who are delivered the baby chickens, buy feed from Inghams and then, about to seven to eight weeks later, deliver the full-size birds at around 90 cents apiece.

This is a process the farmer repeats around six times a year, with a two-week gap in between hatches to help clean the cages.

The whole cycle lasts around 18 months for Inghams, which owns the breeder chooks, sells the babies to the farmers, and then its robots do the processing of around 4.5 million birds a year.

Only around 12 to 13 per cent of Inghams’ output is free range, which is a clear negative in the present climate, but it sees upside in so-called value-enhanced chicken, in which pre-marinated ready-to-serve portions are delivered to the supermarkets.

McMahon has done his time at Shell and Coles so knows the game from the other side of the fence, but you can sure Coles and Woolworths will be watching the float process to see any sign of hubris which allows them into the game.

Already they have slashed the price of BBQ chooks from $11 to $8 each — reportedly on their own books — but at some point they will ask McMahon to share the load.